Anger has followed the Alberta government’s decision to take legal action against companies that exercised a clause in their power purchase arrangements (PPAs) to return the contracts to the provincial Balancing Pool.

Let’s start with how the government is selling the case to Albertans — billing its actions around what they call the ‘Enron clause,’ a terminology that unjustly stains all companies in the power sector, including those the province has specifically targeted — TransCanada, Enmax, Capital Power and AltaGas.

The lawsuit asks the Court of Queen’s Bench to declare void a provision in the PPA regulations that allowed the contracts to be cancelled if a change in law made them “more unprofitable.”

The media campaign defending the decision suggests the province questions the strength of its case, given the apparent need to get public opinion on side. Important, too, it seems is stirring public anger by raising the spectre of Enron, which was effectively put to bed with the Sarbanes-Oxley legislation passed in 2002.

Lawsuits are decided in the court of law, not the court of public opinion.

It’s also important to note the contested clause was inserted to protect buyers of the PPAs from both policy and market-related changes. Without it, the province wouldn’t have collected the $3 billion paid by companies to buy the PPAs. They were the mechanism to effect the final phases of electricity deregulation.

The province will have to support the position it wasn’t aware of the clause that allowed companies to return the contracts to the Balancing Pool. The four that exercised the so-called ‘Enron clause’ apparently did so after discussing with government the actions they were contemplating.

Former premier Jim Prentice, at a leaders debate during the past provincial election campaign, also warned of the government’s potential financial liability if coal-fired plants were shut down early.

What all this wrangling does is send a disconcerting signal to investment and business communities, says Justin Smith, director of policy, research and government relations for the Calgary Chamber of Commerce.

“We are a province that is now willing to rewrite the rules when they become inconvenient for the government,” he said. “That’s not necessarily a stable environment or a stable regime through which to attract investment to our province — particularly when we have an ambitious climate leadership plan,” he said.

“We want to accelerate the phasing out of coal and that’s going to necessitate a lot of inward investment to get some of these projects built and that power incorporated into the grid. This is already a market rife with uncertainty and we have just doubled down on that.”

Viewed from another angle, more risk means the hurdle rate for companies looking to invest in Alberta has increased, because that’s what happens when risk grows. In simple terms, it means the minimum rate a company needs to earn on an investment has increased.

The Alberta electricity market — as a result of deregulation — is among the riskiest since it is a pure spot market. Unlike other provinces, ratepayers don’t take that market risk anymore.

Albertans have benefited from the deregulated market, with consumers today paying the lowest price for energy in 16 years.

The floating rate for electricity is less than 3 cents per kilowatt-hour. Deregulation has meant the private sector, not the government, has invested $16 billion in new generating capacity. The fact power prices are low is directly correlated to the drop in economic activity and made the PPAs unprofitable; the monies received not enough to cover payments to the power plant owners.

Nick Clark of Spot Power, in a letter to deputy premier Sarah Hoffman, said Albertans are paying 30 to 50 per cent less than rates offered by regulated utilities. During the first half of the year, wholesale power prices are running at $17 a megawatt-hour, compared with $80/MWh in 2013.

If you look at what power prices have averaged since deregulation, it works out to $65/MWh. Ask a customer in Ontario what they think of those numbers.

Assuming the PPAs are in the hole because of the combined changes in policy and market conditions, the net impact to Albertans is likely to be a reduction in the rebate received from the Balancing Pool on electricity bills.

A study to be released Tuesday by the University of Calgary’s School of Public Policy, authored by Trevor Toombe and Andrew Leach, surfaces critical information regarding the true cost of the policy changes, the drop in value of the PPAs and the government’s position the terminated contracts will cost Albertans $2 billion.

The irony, as Clark points out, is that the government, through ownership of the PPAs, will be obliged to pay the carbon tax on that power generation. That money will come from Albertans’ tax dollars. One could argue that if the higher costs imposed by the climate leadership plan could be passed on to consumers by the holders of the PPAs, the ‘more unprofitable’ clause might not have been triggered because the contracts would still be worth something.

But that’s not the case.

There is also a Calgary-specific angle to consider.

Enmax is effectively owned by the citizens of Calgary that pays an annual dividend to the City of Calgary — money the Chamber’s Smith points out helps fund budgetary commitments such as subsidizing transit passes for low-income Calgarians.

“For the government to suggest the $10 billion is sitting in a vault and can be given back is wrong. They (Enmax) have invested that money in a modern day, efficient electricity grid,” said Smith.

So what to do?

Smith acknowledges the ‘change in law provision’ in the PPAs was probably not the best to put into the legislation. But, on the basis of that legislation, the province ought to recognize companies paid up and entered into the PPA contracts in good faith.

The companies should be entitled to protections that exist under those contracts.

Some look at it differently, suggesting holders of the PPAs should be made whole as a result of the legislative changes — and the monies to do that should come from the Balancing Pool.

But battle lines have been drawn. At a minimum, Alberta taxpayers will be on the hook for the government’s legal — and advertising — costs on a matter that likely could have been resolved had it heeded warnings.

This lawsuit chills the investment climate in this province, and worse, it sullies the Alberta brand.

Hoffman, in a recent editorial published in this paper, stated the government took these steps because it was elected to protect Albertans.

Protecting Albertans means ensuring a positive and stable investment climate, a critical ingredient for future economic growth. Moreover, when the numbers are finally calculated, if the average Alberta household — which has received $4.4 billion in credits on their power bills since 1999 — sees the credit evaporate during a time when power prices have been low, it’s because of the combination of low prices and the higher carbon costs.

But they are all ahead of the game: electricity costs today are $24.50/month lower than they were in 2014.

Honouring past investments is about protecting Alberta’s reputation as a place to invest in the future. And that goes beyond coal and the electricity sector, to all sectors of the economy.

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